Chapter 15

Front 1

Target Pay out Ratio –

Back 1

the target percentage of net income paid out as cash dividends.

Front 2

Optimal Dividend Policy –

Back 2

the dividend policy that strikes a balance between current dividends and future growth and maximizes the firm’s stock price.

Front 3

Dividend Irrelevance Theory -

Back 3

The theory that a firm’s dividend policy has no effect on either its value or its cost of capital.

Front 4

Bird-in-the-Hand fallacy –

Back 4

MM’s name for Gordon-Lintner’s value will be maximized by setting a high dividend payout ratio.

Front 5

Signal –

Back 5

An action taken by management that provides clues to investors about how management views the firm’s prospects.

Front 6

Information Content (Signaling) –

Back 6

The theory that investors regard dividend changes as signals of management’s earnings forecasts.

Front 7

Clienteless –

Back 7

Different groups of stockholders that prefer different dividend payout policies.

Front 8

Clientless effect –

Back 8

The tendency of a firm to attract a set of investors that like its dividend policy

Front 9

Residual Dividend Model –

Back 9

A model in which the dividend paid is set equal to net income minus the amount of retained earnings necessary to finance the firm’s optimal capital budget.

Front 10

Low-Regular-Dividend-Plus-Extras –

Back 10

The policy of announcing a low regular dividend no matter what and then when times are good paying a designated “extra” dividend.

Front 11

Declaration Date –

Back 11

the date on which a firm’s director’s issue a statement declaring a dividend.

Front 12

Holder-of-Record Date –

Back 12

If the company lists the stockholder as an owner on this date, then the stockholder receives the dividend.

Front 13

Ex-Dividend Date –

Back 13

The date on which the right to the current dividend no longer accompanies a stock; it is usually 2 business days prior to the holder-of-record date.

Front 14

Payment Date –

Back 14

the date on which a firm actually mails dividend checks

Front 15

Dividend Reinvestment Plan (DRIP) –

Back 15

A plan that enables a stockholder to automatically reinvest dividends received back in to the stock of the paying firm.

Front 16

Stock Split –

Back 16

An action taken by a firm to increase the number of shares outstanding, such as doubling the number of shares outstanding by giving each stockholder two new shares for each one formerly held.

Front 17

Stock Dividend –

Back 17

A dividend paid in the form of additional shares of stock rather than in cash.

Front 18

Stock Purchase –

Back 18

A transaction in which a firm buys back shares of its own stock thereby decreasing shares outstanding, increasing EPS, and often increasing the stock price.